Whether you're struggling to make your monthly mortgage payment or you want to turn certain rooms in your house into a source of income, taking in boarders can be an excellent way to bring in extra money. Thanks to the ability to write off all of the expenses that you incur in doing this, you usually can offset most, if not all, of the taxable rental income. Certain homeowners are able to post a tax loss for their rental activities, letting them enjoy their rental income on a tax-free basis.

Reporting Your Income and Expenses

When you take in a boarder, you'll need to add the Schedule E form to your long-form 1040 tax return. Schedule E is where you enter your income and expenses from rental real estate activities with income going near the top of the form on line 3a or 3b and your expenses going on lines five through 19. When you calculate your net income or loss, it gets carried over to line 17 of your 1040 return. You likely also will need to file additional forms for your depreciation and to account for any passive activity losses that you incur.

Rental Expenses

You can claim anything that you spend specifically to rent out your unit as an expense against the income that you earn. This means that if you pay for advertising to attract tenants, incur expense for credit or background checks, or provide a dedicated phone line for the tenant, you can claim the entire cost against your rent.

Prorated Household Expenses

In addition to specific rental expenses, you can write off a proportional share of your household expenses if they go to support the renter. For example, if a renter occupies 150 square feet of your 1,500-square-foot home, you can claim 10 percent of every expense that you incur. If the renter doesn't pay his own utilities, a proportional share of your utility bills become tax deductible, as well as what you spend on repairs, lawn care, and just about anything else.

Depreciation

You can claim depreciation for the share of your property that you're renting out. Depreciation gives you a write-off for a portion of the purchase price of your house -- not your land -- and any improvements. If you spent $250,000 for your house with $60,000 of the cost allocated to land, you can depreciate $190,000 over a period of 27.5 years for the entire building. In the above example of a house that's 10 percent rented out, you could claim $690.90 per year, which is the 10 percent share of the total depreciation allowance of $6,909.

About the Author

Solomon Poretsky has been writing since 1996 and has been published in a number of trade publications including the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." He holds a Bachelor of Arts, cum laude, from Columbia University and has extensive experience in the fields of financial services, real estate and technology.